One of the most popular beverages in America is becoming extinct

As Americans drink less soda, one bubbly beverage is falling much
faster than the rest: diet soda.

Since 2005, American consumption
of diet soda has fallen by more than 27% — a loss of 834
million cases. In 15 years, the category went from accounting for
nearly 30% of all carbonated beverages by volume sold in the
US to roughly 25%, according to Beverage Digest data.

And the fall of diet isn't
slowing down. Diet brands like Diet Coke and Diet Pepsi have
accounted for 94% of all carbonated soft-drink declines since
2010.

"It's a staggering figure," Jonas
Feliciano, a market consultant for Beverage Digest, said at the
trade publication's Future Smarts conference in New York in
June.

The US is turning against
sugar-packed sodas, with nutrition advocate rallying against
Pepsi and Coke sales of calorie-packed beverages. Diet sodas
at first seem like the perfect replacement — a lower-calorie
option that people can drink without worrying about their
health. But sales are dropping even faster than full-calorie
beverages.

If soda giants want their diet
business to survive in 2016, then they need to answer one
question: Why do customers hate zero-calorie sodas?

The demonization of diet

Diet soda hit its peak in 2005,
when more than 3 billion cases were sold in a year. But as
diet sodas peaked, concerns regarding aspartame and other
artificial sweeteners were gaining momentum.

While the FDA and most
nutritionists agree that aspartame is safe to consume, soda
giants began to look for other solutions as sales declined. While
Coca-Cola remains committed to aspartame, last August PepsiCo
announced that it was cutting aspartame from Diet Pepsi, citing
not health concerns, but customer demand.

"Diet cola drinkers in the US
told us they wanted aspartame-free Diet Pepsi and we're
delivering," Seth Kaufman, senior vice president of Pepsi and
Flavors Portfolio, said in a statement. "We recognize consumer
demand is evolving and we're confident cola-lovers will enjoy the
crisp, light taste of this new product."

"Diet Pepsi is awful," one
customer wrote on the company'sFacebook
pagesoon after
the aspartame-free version was released. "I hate the new
flavor."

Ultimately, Americans drank less
of Diet Coke and Diet Pepsi — the two brands that make up half of
all diet-soda sales — in the last year. In 2015, Diet Pepsi
consumption dropped by 5.8% by volume, while Diet Coke dropped by
5.6%, according to Beverage Digest data.

Clearly, including or cutting
aspartame isn't the only problem in the diet-soda industry.
Instead, the issue may be in the inherent nature of diet
sodas.

"The focus has largely been on
new product formulations that seek to mimic their full sugar
counterparts. That, in essence, is where some of the problems
lie," Feliciano said of the diet-soda industry. "There's no
no-calorie sweetener that is currently on the market that can
100% mimic the taste of sugar or high fructose corn
syrup."

Basically, when you want a Coke,
you want a Coke, not something that tastes kind of like a Coke.
Some customers have become die-hard Diet Coke or Diet Pepsi fans
— and, when companies change formulations to fit health trends,
they lose those customers.

What's healthy now

Instead of diet soda, consumers
are turning to functional beverages: options like energy drinks,
sports drinks, tea, and bottled water that serve a clear purpose
for consumers.

In the same 15-year period that
the diet sodas declined by 28%, single-serve bottled water sales
grew 76% by volume. Sports drinks grew 20%, while bottled,
ready-to-drink tea grew a whopping 91%.

"A big part of their success is
there is no full-flavor original to compare them to," said
Feliciano.

As it's become clear that diet
sodas aren't the new, healthy option that consumers are looking
for. Soda companies have been scrambling to invest in beverages
that Americans are drinking — many of them
non-carbonated.

Soda
companies are increasingly betting on water.@smartwater on Instagram

Coke announced in April that sales of non-carbonated "still"
beverages, including water and Minute Maid,
had increased 7%. Its packaged-water volume increased in the
double digits in the first quarter of 2016, as did other
healthier ready-to-drink options, like sports drinks (7%) and tea
(2%).

"Over the last 15 years, we've
gone from still being a single-digit part of our portfolio to now
over 25% of our portfolio," Coca-Cola COO James Quincey said of
non-carbonated offerings in an earnings call in April. "We expect
to continue to grow faster in stills ... and we'll continue to
look for acquisitions to accelerate our growth."

Early in June, Coca-Cola
announced it is buying the largest soy-beverage brand in Latin
America for
$575 million. In
January, the company
bought a 40% stakein Nigeria's largest juice maker, TGI Group's
Chi Ltd., in January, with plans to buy the rest within the next
three years.

PepsiCo CEO Indra Nooyi said in
April that less than 25% of thecompany's global sales are from
soda. Instead,
the company is focusing on healthy snacks and non-carbonated
beverages — a process the company calls "future-proofing."

AP

But when it comes to
"future-proofing" the soda business, it's clearly not
simply about cutting sugar and calories. If it was, then the
diet-soda industry would still be thriving. Instead, it comes
down serving a beverage that serves a function for consumers —
and doesn't try to imitate the sodas that Americans know so
well.

For example, PepsiCo's Mountain
Dew Kickstart has been one of the biggest success stories in the
beverage industry in recent years. A 12-ounce can contains real
juice, 60 calories, and 92 mg of caffeine. It's not a health
drink, but it is one that fits a consumer's need for caffeine
without the negative stigma associated with soda.

In 2016, when consumers think
healthy, they don't think diet. Instead, they think of water and
sports and energy drinks, even if these beverages are packed with
calories and sugar. It's a major shift for the beverage
industry, but it's one that provides an opening for new brands
and acquisitions that fit a new definition of health.